Warren Buffett’s Berkshire Hathaway has demonstrated remarkable resilience and growth in 2024, outpacing the S&P 500 index and marking its best financial year since 2021. With a striking gain of 25.5% in its Class A shares, compared to the S&P 500’s return of 23.3%, Berkshire has solidified its position as a powerhouse in the investment world. However, the steadfast leader of this conglomerate has been cautious, openly discussing the challenges that come with managing such a massive entity.
Berkshire Hathaway’s financial journey in 2024 was nothing short of impressive. The shares even reached a milestone by topping $700,000 throughout the year, signaling both investor confidence and Buffett’s successful stewardship. This impressive growth marked the ninth consecutive year of positive performance for the conglomerate. However, it is essential to recognize that the performance was underpinned by strong operating earnings rather than share buybacks – a strategy Buffett suspended as Berkshire’s stock price rose sharply.
The company’s operational successes stemmed largely from its investment income and underwriting results from Geico, its key auto insurance subsidiary. In the first three quarters of 2024, Berkshire saw a significant increase in interest and other investment income, which climbed to $8 billion from $4.2 billion the previous year. This surge can be largely attributed to a massive cash reserve that stood at $325 billion by the end of September 2024, almost doubling the $168 billion from 2023. As interest rates remained relatively high, even when off their peaks, Buffett effectively deployed this cash, earning impressive returns.
A notable strategy employed by Buffett was the reduction of stakes in his largest holdings, namely Apple and Bank of America. This unexpected move allowed him to maintain liquidity while offloading approximately $133 billion worth of stocks in the first three quarters of the year. This strategy not only illustrated Buffett’s adaptability but also his foresight in managing Berkshire’s investment portfolio during changing market conditions.
Berkshire’s capacity for flexibility was also highlighted in its flagship insurance division, Geico. It had a transformative year, reporting an underwriting profit of $5.7 billion within the first nine months, significantly enhancing its performance from the previous year’s $2.3 billion. This turnaround was notable after Geico faced substantial losses in 2022 as it tried to stabilize its market share against competitors amidst the slow adoption of telematics systems. These systems collect real-time driving data, allowing for more accurate pricing of insurance policies, which proved to be a winning strategy for Geico in 2024.
Despite a stellar performance in 2024, Buffett has tempered expectations for Berkshire Hathaway’s future. In his reflections, he pointed out the substantial size of the company as a limiting factor—the greater the volume of assets, the tougher it becomes to generate outsized returns. Although he believes that Berkshire will continue to perform slightly better than the average U.S. corporation thanks to its diverse and high-quality portfolio, Buffett also emphasized that significant outperformance is unrealistic, dubbing any expectations beyond this as “wishful thinking.”
Nevertheless, Buffett’s history of long-term strategic investment remains unparalleled. Since he took control of Berkshire in the 1960s, the company has consistently doubled the average annual returns of the S&P 500, cementing its reputation as a lucrative and stable investment platform across a broad array of industries—from railroads to candy production.
The ongoing success of Berkshire Hathaway is a testament to Warren Buffett’s investment philosophy, strategic foresight, and risk management. As the conglomerate continues to evolve and adapt to the ever-changing economic landscape, its past performance inspires confidence, yet it is crucial for both investors and the company to remain aware of the realities posed by its size and market dynamics. Moving forward, the challenge will lie in sustaining momentum while navigating the complexities that come with managing a vast portfolio of diverse businesses.